Transat AT Inc. says there is optimism despite rising competition and falling disposable income
Three of the 15 A321 narrow-bodies that Transat operates will be affected by the "anticipated inspection and removal" of their turbofans.
The head of Transat AT Inc. said consumers show little sign of travel wariness, but increased competition and customer financial strain have begun to thin out profit margins even as the travel company guns for major growth next year.
“Consumers clearly continue to prioritize travel despite inflation,” CEO Annick Guerard told analysts on a conference call on Dec. 14, but added that economic headwinds and competition from rival fleets have picked up.
“People are looking to get best possible value for money. We have witnessed slower price growth compared to last year and we believe it will continue into 2024 because of the economic environment and the high interest rates that prevail,” she said.
“We believe that 2023 prices reflected a revenge-travel demand on limited capacity, whereas 2024 is returning to more normal conditions.”
On Dec. 13, Statistics Canada said Canadians are spending a greater proportion of their income on debt servicing, as payments on mortgages, loans and credit grew faster than income in the third quarter versus the second.
Despite potential consumer reluctance to shell out on leisure in the face of soaring debt payments, Transat plans to increase flight capacity by 19 per cent next year through more aircraft and better “fleet utilization.”
The planes will be used to offer higher frequency on some routes, year-round service for other destinations such as southern France and El Salvador, as well as some new summer destinations including Marrakesh in Morocco, the company said.
Transat eked out a profit in its latest quarter, a sharp improvement from losses that averaged more than $1 million per day a year ago as the travel company continues to ramp up flights.
The Montreal-based carrier reported net income of $3.2 million for the three months ended Oct. 31 compared with a loss of $126.2 million in the same period last year.
One challenge could be the greater focus on sun-splashed getaways by several competitors, including ultra-low-cost carriers such as Flair Airlines and Lynx Air. There has been 20 per cent market growth between Canada and sun destinations over the past year, Guerard said, and budget airlines account for more than a third of that.
“Transat has an advantage with a strong customer base looking for packages that these airlines do no offer. It’s difficult for low-cost carlines to win market share without a tour operator business,” the CEO said.
National Bank analyst Cameron Doerksen said that “pricing has deteriorated somewhat on more recent bookings” with Transat.
Across Canada, fares fell 19 per cent in October compared with the same month a year earlier, according to Statistics Canada.
“Although we still expect a solid winter from Transat, we have previously cautioned that winter yields could come under some pressure given the significant increase in overall industry capacity from Canada to sun destinations,” he told investors in a note.
Another hurdle will be the recently discovered defect in the Pratt & Whitney engines on some of Transat’s Airbus A321LR jets. Three of the 15 A321 narrow-bodies that Transat operates will be affected by the “anticipated inspection and removal” of their turbofans, Guerard said. Other airlines are also impacted by the manufacturing flaw, which Pratt & Whitney parent RTX Corp. has said will see hundreds of Airbus jets grounded at any one time over the next few years.
In a separate announcement, Transat said it has signed a deal to sell its 50 per cent stake in the Marival Armony Luxury Resort near Puerto Vallarta in Mexico to its co-owner, the owner of the Marival Group, for US$15.5 million. Proceeds from the sale will be used to repay its $2.1-billion total debt, a figure that reflects the financial toll of the COVID-19 pandemic.
